Germany targeted for downside protection

Some investors want more exposure to the country based on its economic strength and ability to withstand a downturn, delegates at the Germany Forum 2018 heard.

While investors are generally keen to build diversified portfolios, many are seeking greater exposure to the German market as they believe the strength of its economy offers downside protection in the event that the benign cycle comes to an end.

The observation was made by Marcus Maier-Krug of fund manager BlueBay who added that investors should bear in mind that the performance of GPs through tougher market conditions will come down to their experience and ability to successfully drive workout situations.

Moreover Klaus Petersen of fund manager Apera Capital questioned whether Germany was necessarily the right choice for a higher weighting based on its economic resilience. He said that, although the last downturn did not affect Germany as severely as other markets, it was not the quickest to emerge from it – the UK claimed that accolade.

“You need to look deeper [when making decisions as an investor],” according to Petersen, taking account of such factors as the restructuring framework of a given jurisdiction and how well you are able to protect your rights.

Harald Eggerstedt of Willis Towers Watson made the point that not many German LPs take professional advice, possibly as few as 20-30 percent of the total. Instead, they have a tendency to “muddle through on their own”. This was not much of an issue a number of years ago when the market was based around syndicated loans and it was easy to get access. But, since the market has become more sophisticated and a broader range of private debt products have evolved, more investor education has become necessary.

Panellists at the opening session of the Germany Forum in Munich agreed that Germany has been beginning to reach its private debt potential since funds were allowed to lend without a banking licence. However, for local investors, accessing the growth of the market is not straightforward. Eggerstedt said pension funds were constrained in terms of their ability to access sub-investment grade debt and also faced taxation obstacles.